Angola Infrastructure Report Q3 2012

BMI View: A severe infrastructure deficit and the number of projects currently underway in Angola – particularly in the transport and the housing sectors – mean we are optimistic with regard to sustained growth in the country’s construction industry. We forecast average annual real growth of 13.5% between 2012 and 2016, the highest in the region.

The key factors driving our optimistic outlook are:

There continues to be significant investment in reconstruction following the extensive civil war (1975-2002). The Angolan National Roads Institute (INEA) has revealed the Angolan road network increased from just 322km in 2006 to 6,404km in 2010. Meanwhile, plans are being undertaken to build a total of 13,800km of asphalted roads.

Oil windfalls are going to be significant in 2012 with global oil prices persistently high in the first five months of the year. . This will provide the funds for spending in the sector as it grants the government more fiscal freedom. With infrastructure development heralded as one of the government’s key priorities, we expect inflated oil revenues to be funnelled into crucial projects.

Housing investment is taking centre stage and is a major focus of government expenditure. A number of projects – for the construction of tens of thousands of homes across the country – have been announced. In August 2011, the Angolan government was reported to have partnered with China International Fund Limited (CIF) to carry out a project involving the construction of 5,000 new houses in a new neighbourhood of Kilamba over the next two years.

The government is keen to use public-private partnerships (PPPs) to encourage private sector investment in the infrastructure sector, and to transfer risk to the private sector. Numerous PPPs are expected to be procured in 2012. With a number of technically proficient construction companies already present in the country, we expect considerable interest; however, raising financing will be the main concern.

New GDP data for 2011 from the central bank show that our 2011 forecast (AOA685bn) was slightly higher than the final official figure of AOA714.8bn (US$7.5bn). Nonetheless, our expectation of high (nominal) growth was confirmed and we anticipate the same dynamics of high oil prices buying growth in the industry to continue over 2012. High inflation eroded real growth over 2011 Despite this optimism, there are downside risks. While the high inflation experienced over previous years has moderated, shortages in building materials and qualified labour are still present, and this could drive construction industry prices up once again, eroding real growth potential. In addition, a failure on the part of the government to pay construction bills could deter companies from bidding for projects; however, news that the government is keeping to a repayment schedule will boost confidence in the industry.